Wall Street seeks immunity from IPO antitrust lawsuit

MarkH. Anderson

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WASHINGTON (MarketWatch) -- The U.S. Supreme Court Tuesday appeared inclined to give Wall Street firms another shot at deflecting a class-action lawsuit claiming they illegally pumped up prices and margins on initial public offerings during the 1990s technology bubble, but how far the justices will go wasn't clear.

The high court heard pleas from more than a dozen Wall Street underwriters and brokerages that are seeking broad immunization from a lawsuit filed on behalf of investors in about 900 high-technology and Internet companies. The justices are trying to decide whether investors can have their antitrust claims against the securities industry heard in a federal court. If so, then Wall Street companies could face tripled damages for market activity they contend is allowed under federal securities laws.

The outcome of the case may hinge on the Supreme Court's answer to whether the Securities and Exchange Commission rather than a federal court should be the primary entity to decide this question from Justice David Souter: "What is the particular difference between supporting the price and rigging the aftermarket?"

Justice Souter later in the argument answered the question for himself. "Isn't primary jurisdiction the most efficient answer to the problem," he said, arguing the SEC's regulatory powers might hold sway over the success of a private antitrust lawsuit.

Although a majority of the Supreme Court appeared likely to make it harder for the investor lawsuit to prevail, the justices at the arguments probed for how much deference to give to the SEC. They appeared uncomfortable with the government's approach, which splits the middle between securities and antitrust regulation, and with the demand from Wall Street that the case be thrown out without additional deliberations. One possible outcome is for the high court to outline an antitrust standard and let lower courts sort things out.

At issue is whether tie-in agreements - deals between investment banks and securities firms that require the purchase of additional securities in aftermarket trading of new stock offerings - amount to antitrust violations that can support a private antitrust lawsuit. The investors who brought the lawsuit allege such agreements created stacks of stock purchases that artificially drove up the price and margin on hot new stocks. The firms say their conduct was legal under the securities laws.

"This is the toughest cop in Washington. They are perfectly capable of dealing with this," Shapiro said of the SEC, arguing the agency has "voluminous regulations" on the alleged illegal conduct. "All of this conduct is closely connected to what is permitted," Shapiro added.

The SEC and Justice Department, represented by U.S. Solicitor General Paul Clement, argued for a middle ground that would preserve the ability of government prosecutors to police antitrust activity but set a high bar for private parties to successfully mount a class-action lawsuit against the industry. "You don't want to sweep immunity too broad," Clement said.

Christopher Lovell, the attorney for the investors, argued the activities by Wall Street firms during the technology bubble amount to an antitrust conspiracy that illegally boosted profits that should not be left only to federal agency to remedy. "It was a massive violation that the securities laws were really not set out to address," said Lovell of Lovell Stewart & Halebian LLP.

The justices were both concerned about abusive securities-related lawsuits and about crafting a legal standard that is balanced in guarding against antitrust violations on Wall Street. They also appeared sympathetic to the role the SEC plays in regulating securities markets and to the special rules the agency has in place to make sure IPOs gain a foothold in post-offer trading, a notion that could tilt in favor of Wall Street when the case is decided.

"To some extent these people are under the securities laws in the business of fixing prices," Chief Justice John Roberts Jr. said, noting also that the SEC doesn't "think these antitrust actions are good for the securities markets."

After dismissal of a broad array of claims by a federal trial court, the 2nd U.S. Circuit Court of Appeals in New York revived claims on tie-in agreements after a U.S. District Court dismissed the lawsuit.

A decision is expected before July. Chief Justice Roberts, who previously was recused from the case, without offering an explanation rejoined the case before the oral arguments, leaving eight justices to decide the appeal. Justice Anthony Kennedy recused himself last week.

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